The Future of Reinsurance Regulation: State vs. Federal Demystifying Reinsurance: A Basics of Reinsurance Course Reinsurance Association of America May 9, 2011 Joseph T. Holahan Morris, Manning & Martin, LLP (202)

Growth of Federal Regulation of Insurance Liability Risk Retention Act HIPAA and its progeny Gramm-Leach-Bliley TRIA Affordable Care Act Dodd-Frank Wall Street Reform and Consumer Protection Act

Dodd-Frank: Financial Stability Oversight Council (FSOC) General duties: Identify risks to U.S. financial stability Promote market discipline Respond to emerging threats to stability of U.S. financial markets Composition: Chaired by Treasury Secretary 10 voting and five non-voting members Insurance members: Independent voting member with insurance expertise appointed by president Director of FIO serves as non-voting member State insurance commissioner serves as non-voting member

FSOC – Implications for Insurers Potential for federal insurance solvency standards Council may make recommendations to primary financial regulatory agencies, including state insurance regulators, regarding standards and safeguards for financial activities that threaten stability of U.S. financial markets Regulator must adopt recommended standards or similar standards or explain in writing why it will not follow recommendations Potential for supervision by Federal Reserve of insurers deemed to pose systemic risk Two-thirds vote, including Treasury Secretary, required Standards for determining that a company poses systemic risk under development Council must consult with insurance regulators Supervision is focused on solvency

Dodd-Frank: Federal Insurance Office (FIO) No general supervisory or regulatory authority But other powers could prove significant: Recommend insurers for supervision by Federal Reserve Coordinate federal policy on international insurance matters, including assisting negotiation of international treaties Determine whether state insurance laws that are inconsistent with international treaties and disfavor non-U.S. insurers are preempted Assist administration of TRIA Study insurance industry and collect data from insurers and their affiliates, including through subpoena Report and make recommendations to Congress No authority over health, LTC or crop insurance

Dodd-Frank: Nonadmitted and Reinsurance Reform Act of 2010 (NRRA) Home state regulation of surplus lines Reinsurance Preempts extraterritorial application of credit for reinsurance standards if cedant’s domicile is accredited by NAIC or has solvency requirements substantially similar to requirements necessary for NAIC accreditation Preempts laws of state other than cedant’s domicile (except laws relating to taxes and assessments) to extent they Restrict or eliminate cedant or reinsurer’s right to resolve disputes pursuant to contractual arbitration provisions, to the extent such provisions are not inconsistent with Title 9, U.S. Code Require that a certain state’s laws govern the terms of the reinsurance contract, disputes arising under the contract or requirements of the contract Attempt to enforce a reinsurance contract on terms different from those set forth in the contract itself Otherwise apply the laws of the state to reinsurance agreements of cedants not domiciled in the state U.S. reinsurer’s state of domicile is sole regulator of its financial solvency if accredited by NAIC or has substantially similar financial solvency requirements and no other state may require reinsurer to provide financial information other than what is required by domicile

Joseph T. Holahan Morris, Manning & Martin, LLP (202)